Nov. 16, 2000 - AT&T Corp. plans to spin off cable-programming arm Liberty Media Group early next year to alleviate conflicts of interest between the two and possibly satisfy federal regulators.

The widely expected separation - for which Liberty chairman John Malone has openly campaigned - will allow Douglas County-based Liberty more flexibility in raising capital and free it from federal regulations that hindered it under AT&T. Currently labeled with a tracking stock, Liberty will also gain its own stock as an independent company.

AT&T acquired Liberty last year as part of its purchase of Tele-Communications Inc.

"There are some potential benefits to Liberty," chief executive Robert Bennett said during a conference call with Wall Street analysts Wednesday. "For starters, there are some administrative efficiencies - not having to work through a second board of directors and a tracking stock.

"There's a reduced conflict of interest in not working with AT&T," he added. "There seemed to be some increased prospect that we would run into each other and that would create conflicts. And finally, there is some reduced regulatory overhang."

The conflicts of interest arose when Liberty sought to invest in companies that operate in markets where AT&T already had a presence. For example, federal crossownership rules for the cable industry sometimes prohibit companies from owning cable providers and cable programmers in the same market. AT&T is the United States' largest cable provider, so Liberty sometimes found itself constrained by AT&T's wide reach.

LIBERTY MEDIA SAGA

1991 - Tele-Communications Inc., founded by Bob Magness in 1968, spins off its programming arm as Liberty Media. TCI shareholders are offered the right to exchange 16 shares of TCI stock for each share of the newly independent Liberty.

November 2000 - AT&T announces plans to spin off Liberty Media as part of a restructuring that will split the telecommunications giant into four separate companies. AT&T expects to launch Liberty Media Group as an independent, publicly traded company in the second quarter of 2001.

For New York-based AT&T, a spinoff would satisfy a regulatory requirement left over from its acquisition of Denverbased cable company MediaOne earlier this year. In approving that deal, federal regulators required AT&T to decide by Dec. 15 whether it will spin off Liberty, divest its stake in Time Warner Entertainment or sell some of its cable systems.

Yet AT&T representatives say Liberty will be spun off because the move supplements AT&T's recent decision to split into four separate companies, not because it satisfies a regulatory requirement.

"That would be a big benefit to us if we chose to go that way, but we aren't saying if we will or won't," AT&T spokeswoman Adele Ambrose said. "We have other options open to us at this point."

She declined to elaborate.

With ownership stakes in big-name entertainment ventures such as News Corp., USA Networks and Gemstar-TV Guide International, Liberty has the second-largest market value of a Colorado company: $40.6 billion. Yet the company employs fewer than 40 people in the state.

As part of the spinoff, AT&T will seek the Internal Revenue Service's blessing of the move as a tax-free transaction. Under normal circumstances, a company pays taxes on the spinoff of an asset it has owned for fewer than two years. However, AT&T plans to argue it could not foresee the need to shed itself of Liberty when it bought TCI last year.

In another tax twist, AT&T will pay Liberty upon completion of the spinoff the tax value of $2 billion in net operating losses Liberty retained from the former TCI. Liberty has traditionally used those "carry-forward" losses to shield its quarterly earnings from taxes. Liberty executives estimated the tax value of the losses at $500 million to $800 million.

If completed, the spinoff will mark yet another dramatic move made by AT&T on the urging of Malone. The Liberty Media chairman, who is also AT&T's largest shareholder, was vocal in his opinion that AT&T should break up its operations before the company opted to do so. Last week, he commented during a speech in Japan that a Liberty spinoff would be best for both sides.

Malone's next move is anyone's guess.

"He's pretty tight-lipped," said Vick Khoboyan, an analyst at Los Angeles-based Financial Management Advisors, which owns 280,000 shares of Liberty. "I think he has to wait until this is approved before he starts sniffing around."

Denver Post business writer Marsha Austin contributed to this report.

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